Executive Summary

That’s what Brian Katz, founder of Tampa-based Katz Capital, has done. He acquired Camp Grove, Ill.-based Camp Grove State Bank, which has $19 million in total assets and about $2.5 million in equity capital, for an undisclosed sum. The all-cash transaction, announced March 5, is pending regulatory approval but both Katz and officials with Camp Grove Bancorp, the bank’s parent company, expect it to close by the end of the second quarter. Camp Grove State Bank had about $1.1 million in revenue in 2018, according to Federal Deposit Insurance data, down slightly from 2017.

“If you have title insurance, a capital brokerage and a bank, all under the same branding umbrella, there’s power to that,” says Katz, 41, whose company consists of Pineywoods Realty, Pineywoods Title, Pineywoods Insurance, Pineywoods Mortgage and Pineywoods Capital. “It will give us an unparalleled cross-selling opportunity through all of the affiliated entities. There’s a whole suite of services, from a banking standpoint, that we can now offer. It positions us to be a unique platform.”

Yet Camp Grove State Bank, on paper at least, is something of an odd fit for Katz's budding empire. The bank is a small institution focused mainly on lending money to farmers in the heartland of Illinois. It’s been in the hands of the same family for three generations, and it has only three full-time employees. And the unincorporated community it serves has a population of roughly 85 people.

Katz, meanwhile, has a background in banking, having worked for Goldman Sachs before going out on his own. He prefers to make money from investments in Florida real estate — not Midwest agriculture. How will he fit a square peg into a round hole?

BUNDLE UP

The arrangement isn’t as awkward as it sounds, Katz insists.

He looks at it as part of the trend toward horizontal growth and development reshaping the economy. It’s why you see companies such as Apple, historically a hardware maker, developing a content-delivery platform to compete with the likes of Netflix. Today, consumers prefer a bundled, convenient, one-stop shop approach to products and services, regardless of whether they’re shopping for a movie or a mortgage.

“From our standpoint, it more broadly integrates the platform together,” Katz says. “Being able to offer a uniquely integrated suite of services allows us to differentiate ourselves and, in turn, not focus on being the low-cost provider, which in some cases we might have had to be. How we define ourselves and what we can offer, that’s unique, and by being unique, there’s brand equity in that.”

'The tricky thing with buying other businesses is you're buying other relationships and other cultures.' Katz Capital, Brian Katz

Katz plans to leverage services offered by his Pineywoods companies to benefit Camp Grove State Bank clients. For example, he says the bank’s customers will have access to a broader range of asset classes in loans and deposits. He also plans to capitalize on Camp Grove’s decades of experience in the agricultural sector to make inroads with that potential client base in Florida.

“From the start of the negotiations, our mindset was to keep the bank open and keep it servicing central Illinois,” he says. “That’s critical. But I don’t want to buy a small bank in Illinois and not be able to originate business down here. You need to go both ways.”

Katz believes a bundled, full-service approach that includes banking services will also help his Pineywood entities compete with larger national and regional banks.

One obstacle: Katz acknowledges Camp Grove, as a tiny community bank, is vastly outgunned when it comes to technology. Many other small banks nationwide grapple with that challenge as well.

“Technology is altering the ownership of deposits across the country,” he says. “Post-transaction, the big banks have a higher percentage of deposit than they do pre-transaction, and you see that process continuing to accelerate. As a small bank, how can you compete against a large bank that’s putting billions of dollars per year into customized technology development? We’ll have to find off-the-shelf financial tech products that the regulators are comfortable with.”

Katz says he’ll mitigate that disadvantage with “a ton of transactional flow in business” that will come from adding banking services to the Pineywoods platform.

“It gets back to that uniqueness,” he says, “and how we are creating something a little different, a little unique that gives us a leg up competitively.”

CULTURE CLUB

Katz, who grew up in north-central Illinois and has family there, saw Camp Grove State Bank as a good fit, culturally. Yet he didn’t set out to buy a bank so closely connected to his roots. “We initially started our search in Florida,” he says, “but our pricing expectations weren’t aligned in terms of what was available in the market.”

In Illinois, history was also on Katz’s side. The state was one of the last in the country to repeal interstate banking prohibitions that made mergers more difficult, so it has a high number of small, locally owned community banks.

“That's why you have states like Ohio and North Carolina that have kind of all these larger institutions,” Katz says, “because they were some of the first states in the union to repeal those prohibitions, which allowed merger activity to happen a lot earlier.”

At a glance: Katz Capital

Year Revenue % Change

2016 $4.43M N/A

2017 $5.99M 35%

2018 $8.26M 38%

Roger Hernandez of Olsen Palmer, an M&A firm that serves the banking and finance sector and has an office in Chicago, reached out to Katz about Camp Grove State Bank’s desire to sell. Dennis Hickey, Camp Grove State Bank’s president and CEO, says the bank had been looking for a buyer for about two years when Katz came along in June 2018.

Hickey, 75, has worked for the bank — which dates back to 1902, when his grandfather helped open it — for more than 40 years. He became president in 1990, and has no desire to retire. “I enjoy what I do here,” he says.

Even so, the passing of Hickey’s mother was a core event that triggered the hiring of Olsen Palmer, which began the search for a buyer for Camp Grove State Bank. Another pull in that direction: Hickey says his siblings and children weren’t interested in the bank as an investment, nor did they want to succeed him.

Several offers for the bank came in, Hickey says. But none topped what Katz put together.

Katz Capital “offered us the opportunity to have ownership that would allow us to continue to do what we've been doing for 117 years,” Hickey says. “Some of the other offers, in fact, all but one other, were banking institutions that basically wanted our capital. They wanted our loans and our deposits, but they didn’t necessarily care whether we continued to exist in our small environment. So we fended those off.”

Hickey says he wants to run the bank for another five years, and Katz intends to make that happen. “I’m probably viewed as a ‘unicorn’ buyer,” he says, “because I’m coming and paying a reasonable price relative to what their pricing expectations were, and I’m allowing existing management to stay."

Signing on the dotted line, though, is just the beginning of the bank acquisition process for Katz. Now he has to integrate Camp Grove State Bank and its employees, all three of them, into the Katz Capital/Pineywoods system. With Hickey’s help, Katz must also assuage concerns of the bank’s existing clients — many of whom are farmers whose parents and grandparents banked with Camp Grove — that the change in ownership could adversely affect their relationship with the institution.

Mark Wemple. In addition to buying Camp Grove State Bank, Brian Katz recently moved his company, Katz Capital, into new office space in Tampa.

“The tricky thing with buying other businesses is you're buying other relationships and other cultures,” Katz says. “If those individuals that have those relationships don't integrate well into the organization, those bought relationships might not stay. We have found more success by growing existing relationships that we have within our platform. It's actually very atypical for us to be doing an acquisition this way.”

That means Katz has to prioritize effective messaging. His small-town Illinois roots have come in handy, because he understands the value placed on trusted, long-term relationships in tight-knit communities like Camp Grove. He intends to make it known he’s in it for the long haul, not just a quick flip.

“This is a generational investment that I wouldn’t view through the typical private equity lens,” he says. “People there care a lot about relationships. It’s not a transactional way of doing business and conducting oneself. I would say that a great degree of our success [in Florida] has been through relationships. It’s something we value internally.”

There are no immediate plans to alter the name of the bank, while Hickey says customers will barely notice the change in ownership. And they won’t need to order new checks, as he assured one concerned customer after sending out letters announcing the acquisition. “For some people," Hickey says, "that’s what it boils down to.”